Personal vs. LLC expenses for Taxes

[Trinity]

Hello,

I'm a newbie and this site has been a dream come true.  I've purchased two homes and I'm in the process of rehabbing them
to sell.  Is it ok to expense items for these properties from my own personal banking account as long as I keep all receipts or do I HAVE to use my LLC bank account for all expense tranactions?

Please help!!!

[WilsonTaylor]

If you have an LLC, I would recommend that you transfer the money to the LLC and then pay the bills from the LLC.  If you do not have an entity, then just use your personal account.

Wilson

[Trinity]

Thanks for the reply Wilson.  Is it still ok to expense previous expenses from my personal acccount (with receipts) and then
just start using my LLC going forward for future expenses?

Thanks for the help!!

[WilsonTaylor]

Yes, but you need to talk to an accountant.  Since the LLC is a separate entity, you need to treat it as such and keep all your finances separate, otherwise it makes it easy to "pierce the corporate veil".  My accountant recommends that every penny that is spent for the LLC goes through the checking account.  If you make a deposit, make sure you know where that money came from.  If you loan the LLC money, then make a formal note and have it dated.  I would recommend that if you need to loan the LLC money, that you do so in even increments.  By even increments, I mean loan $1000 instead of $696.59 to pay a bill.  I even pay myself interest on the loans.

Wilson

[aak5454]

most likely your LLC will be a disregarded entity for taxes purposes.  This means where the money comes does not matter to the IRS.  mixing personal funds and LLC greatly diminish the effectiveness of the LLC with respect to legal protection.

[Trinity]

Can you please explain a little furter in detail in regards to effectiveness around LLC legal protection?  Do I gain any tax benefit from reporting income\expenses from my personal account vs. my business.  I just established my LLC in Feb. 2005.

Thanks much in advance for your response

[Dave T]

From a tax standpoint, it really does not matter.  Rehab costs are adjustments to basis NOT deductible expenses.

Adjustments to basis are recovered when you sell the property and reduce your net taxable income.  When you flip these properties, the income and expenses are shown on Schedule C and your self-employment income taxes are computed on Schedule SE.

[aak5454]

To start, I have paid lawyers for a bunch of opinions on LLCs and their usefulness.

Standard legal practice is to sue anybody and everybody close to the deal.  So, they will sue you and the LLC and you personally.  With an LLC, it boils down to how well you create image of a corp. (i.e. keep the books) and how good their lawyer vs. your is.   Bottomline, the LLC concept is probably oversold (never been sue and plan ot kepp it that way).  The use of an LLC is just another barrier. (i.e. it increases your odds).

If you owe property get personal liability insurance ($300-700 per yr) and for get about it.

As for taxes, the LLC is transparent.  It has no advantage

[aak5454]

again agree with DaveT; without title insurance you are taking a big risk.

Upside save a few hundred dollars; downside---you are wiped out on this deal.

This is the true meaning of insurance